Forex Signals Users Need To Pay Close Attention To Money Management
So, you decide you want to use a Forex signals service as a shortcut to Forex profits. All you need is a Forex trading account and the ability to place and manage trades on the account. Oh, wait, you already have a trading account… so you are ready to go!
Well, hold on. It might not be that simple.
Before you start placing trades, you need to figure out your money management strategy. If you just start placing trades without a plan, it is very easy to “overtrade” the account and do permanent financial damage.
Opening And Funding A Forex Broker Account
Opening a real, live trading account is an important milestone for any trader. Most brokers offer Demo accounts, so downloading the platform to your computer and playing around is not all that difficult.
But when you open a LIVE account, that is when things start to get serious.
Funding the live account you just opened is another milestone, because it means you are prepared to put real money at risk under live market conditions. Obviously, this is a necessary step if you want to make real money trading the currency market.
But you might be surprised how FEW people who download DEMO accounts actually take the steps to open and fund a live account.
In the beginning, there is a hesitation about taking this step. But if you want to be a successful trader, you need to open a live, funded account. And, as you will see later in this lesson, it is probably going to be necessary to open MULTIPLE live accounts.
Avoid Too Much Risk On One Account
Let’s say you are one of the people who have actually opened and funded a live trading account. And, you might even be taking trades on this account based on a strategy you have learned.
Then you decide to join a Forex signals service to follow the advice of an already successful Forex trader.
If you just start placing the signals trades on the same account as you are placing your own trades, you risk over-trading the account. By that I mean, you are probably going to be risking too much money at any one given time by placing all the trades.
And using too much risk on one account is a sure way to get yourself in trouble.
There will be losing trades regardless of whether you are placing the trades yourself based on a strategy you have learned, or if you are following a Forex signals service. When you place a trade on your account, you need to decide the money management strategy you are going to use for each trade.
The trick is to find a risk level that safely allows you to grow your account over time AND survive through losing trades or losing streaks.
That means you need to take the time to come up with a money management plan… and stick to it.
Concentrate On The OVERALL Risk Of Each Account
A lot of traders know about money management and how important it is to long term success. When placing a trade, you must decide how much money will be at risk.
In other words, if the trade is a loser, how much money will you lose? (And as you should know by now, there will be losing trades).
One of the important, but often overlooked, aspects of money management is deciding how much overall risk you’ll accept on your account. Since most traders have multiple trades open at any one given time, you need to manage how much risk you have on your account at any one given time.
If you don’t take the OVERALL risk per account into consideration, it is easy to place too many trades at too high risk and put a large portion of your trading account at risk.
At that point, all it takes is one bad patch of losing trades, or a losing streak, to do serious damage to your trading account.
I’ve come up with an easy solution to this problem.
The Solution: Use One Account Per Instrument (Currency Pair) Traded
The simple solution is to open multiple trading accounts. Use one account per instrument you are trading. That means there will only be one trade per account, and it is very easy to figure out and stick to your money management strategy.
For example, I trade and provide signals for currency pairs at this time (GBPJPY, GBPUSD and GBPAUD). Therefore, I open different trading accounts, one for each currency pair.
My money management rules are to only risk 5% of my account at any one given time. Since I am only placing one trade per account, I can use the entire 5% risk per trade. This is very easy to keep straight, and I never risk overtrading the account by placing too many trades at too high risk.
Obviously, you are only going to use a Forex signals service if you like the performance results. In other words, it doesn’t make sense to join a signals service if the trader is not profitable over the long term.
But being profitable over the long term does not mean you are going to win all the time. Therefore, you need to protect your account balance by using strict money management rules.
Placing tons of trades with high risk on one account is a sure way to get yourself into trouble, no matter how good the overall performance of the trader you are following is.
Pay close attention to your money management rules, and grow your accounts systematically over time. Don’t look for ridiculous, windfall profits that cannot be sustained over time.